J2 Acquisition to buy APi Group for $2.9 bln

J2 Acquisition Ltd said Sept. 3 that it agreed to buy APi Group Inc for about $2.9 billion. APi provides commercial life safety solutions and industrial specialty services. J2 Acquisition is a SPAC set up by former executives of U.S. consumer products firm Jarden, according to press reports.

PRESS RELEASE

TORTOLA, British Virgin Islands, Sept. 3, 2019 /PRNewswire/ — J2 Acquisition Limited (“J2”, LSE: JTWO) announced today that it has entered into a definitive agreement to acquire APi Group, Inc. (“APi” or “Company”), a market-leading provider of commercial life safety solutions and industrial specialty services, for approximately $2.9 billion, subject to customary closing conditions (the “Transaction”). J2 expects to list its shares on the New York Stock Exchange (“NYSE”) under the symbol APG and change its jurisdiction of incorporation to Delaware in connection with the NYSE listing.
APi is a market-leading provider of commercial life safety solutions and industrial specialty services and a top-5 specialty contractor in the U.S. with a diversified, blue chip customer base, robust contracted services offering, and a track record of successful acquisitions. The Company operates more than 40 nationally and regionally significant businesses with market-leading brands in over 200 locations and generates over 95% of its revenue in North America, primarily in the United States. APi has historically delivered consistent and strong financial results and expects to deliver approximately $4 billion in revenue and approximately 10% adjusted EBITDA margins for the full year 2019.
APi provides J2 an ideal foundation of market leadership upon which to build through a prudent strategy that prioritizes organic growth, combined with strategic and opportunistic M&A. The J2 founders Martin E. Franklin, James E. Lillie, and Ian G.H. Ashken, have decades of experience operating, growing, and investing in multiple businesses using a similar strategy focused on organic growth and disciplined acquisitions in niche markets and industries, as well as on building winning cultures. APi, with approximately 15,000 employees, has an industry leading employee development program and, following its investment in APi, J2 plans to continue to build on APi’s operating strengths with a focus on expanding the service portion of the business across its portfolio.
Sir Martin E. Franklin, co-founder of J2, commented, “We believe APi is an excellent foundation for J2’s initial investment and is solidly in line with our disciplined investment criteria. The Company demonstrates similar qualities to Jarden, in that it unlocks uncommon value from niche businesses and delivers a strong track record of consistent organic performance complemented by disciplined M&A. This Transaction meets our long established acquisition criteria with significant potential for short and long term value creation for our shareholders. We look forward to working with Russ Becker, the President and CEO of APi, whose leadership has positioned the Company for the strong growth opportunities ahead.”
James E. Lillie, co-founder of J2, added, “We were immediately impressed by APi’s management team, its strong culture, and its commitment to leadership development, combined with consistent delivery of margins and cash flow at the high end of its peer group over the years. The business operates in resilient and dynamic markets with attractive growth drivers and we believe that, with the current management team, we can drive shareholder value by guiding the business to even better levels of performance and growth. We expect APi to deliver long-term value creation through above industry average organic sales growth, its ability to leverage SG&A, expansion of Adjusted EBITDA margins to 12%+ by 2023, continued free cash flow conversion of 80%+, high single digit average earnings growth and maintenance of a long term leverage ratio of 2.0x-2.5x.”
APi’s existing management team will remain in place, including President and CEO Russell A. Becker and Thomas Lydon, who upon closing will become the combined company’s CEO and CFO respectively. Martin E. Franklin and James E. Lillie will become Co-Chairmen of the Company, Ian G.H. Ashken and Russell Becker will join the board along with a number of other board additions to be announced at closing of the Transaction. J2 intends to change its name to APi Group Corporation upon closing.
Russell A. Becker, President and CEO of APi, commented, “The J2 team’s decades of leadership experience operating large diverse businesses, broad industrial knowledge, and disciplined acquisition strategy – that they have employed successfully at previous companies and ventures – will be instrumental in further growing APi’s inherent value and innovative, customer-centric approach over the long term. The J2 team’s approach has historically produced impressive results and opportunities for shareholders, customers, suppliers, the communities in which they operate, and importantly, for employees, and is highly complementary to APi’s existing culture and strategy. We look forward to benefitting from J2’s successful operating experience and investment knowledge. Additionally, I want to thank Lee Anderson for his 55+ years of service at APi. Our tremendous growth and unique culture would not have been possible without his leadership, commitment, sacrifice and complete dedication to APi.”
The Chairman of the J2 Board of Directors, Lord Myners of Truro CBE stated “The J2 Board unanimously supports this transaction. We believe APi is an excellent fit with J2 and congratulate the founders of J2 and the management team of APi.”
The Transaction is expected to be funded through a combination of J2’s cash on hand, new debt financing, early warrant exchange (as described below), and rollover equity from existing shareholders. For Transaction valuation purposes, Russell Becker’s investment of 50% of his net sale proceeds and other existing shareholders rollover equity is valued at $10.25 per share, the same price as the Warrant Financing. Current APi shareholders will receive approximately $2.05 billion in cash and 28.373 million ordinary shares in J2 and will own approximately 14.5% of the company at closing, primarily held by the Company’s existing employee stock ownership plan. The Company’s net debt leverage ratio at closing is expected to be 2.8x, assuming the full warrant exercise.
The Transaction includes a tax asset with a net present value of approximately $180 million, resulting in a net purchase price multiple of 7.4x last-twelve-months June 30, 2019 Adjusted EBITDA of $371 million. The Transaction is expected to close in the fourth quarter of 2019, subject to customary closing conditions.
It is expected that the listing of the ordinary shares and warrants on the standard segment of the Official List will be suspended by the UK Financial Conduct Authority at J2’s request with effect from 7.30 a.m. (London time) on 3 September 2019, as, in accordance with the requirements of the UK Listing Rules, the Transaction is treated as a reverse takeover. Trading of the ordinary shares and warrants on the London Stock Exchange (the “LSE”) is expected to be suspended from this time and it is not expected that trading will resume. However, shares may trade on the OTC market in the U.S. under the symbol JJAQF. It is anticipated that J2’s listing of shares and warrants on the LSE will be cancelled on or shortly after the NYSE listing is achieved.
J2 expects shortly to announce an early warrant exercise financing (the “Warrant Financing”) and consent solicitation to replace part of the committed debt funding as part of the Transaction. Warrant holders will be given the opportunity (i) to commit to the early exercise of their warrants, conditional upon consummation of the Transaction, at a reduced exercise price of $10.25 per whole ordinary share (the “Reduced Exercise Price”), and (ii) to consent to an amendment to shorten the subscription period for the warrants to expire upon the consummation of the Transaction (subject to certain limited exceptions) (the “Warrant Amendment”). In order to participate in the Warrant Financing at the Reduced Exercise Price, warrantholders must also consent to the Warrant Amendment (unless and until such time that J2 announces that the Warrant Amendment has been effected, following which all warrantholders may participate in the Warrant Financing at the Reduced Exercise Price). Each of (i) Mariposa Acquisition V, LLC, a Delaware limited liability that is affiliated with Martin E. Franklin, James E. Lillie, and Ian G.H. Ashken representing approximately 8.0% of all outstanding warrants, and (ii) entities managed by Viking Global Investors LP, representing approximately 20% of all outstanding warrants, have committed to exercise all of their warrants in connection with the Warrant Financing at $10.25 per ordinary share, representing approximately $34.1 million and $85.4 million, respectively, and consent to the Warrant Amendment.
Please refer to Annex 1 for more financial information on APi and Annex 2 for certain pro forma financial information.
UBS Investment Bank acted as financial advisor, Citigroup as capital markets advisor and Greenberg Traurig acted as legal advisor to J2 on this Transaction. Citigroup, Bank of America, Barclays and UBS have committed to provide financing for the Transaction.
William Blair & Company acted as financial advisor and Faegre Baker Daniels and Fredrikson & Byron acted as legal advisors to the Company on this Transaction.